Published Online:January 2026
Product Name:The IUP Journal of Law Review
Product Type:Article
Product Code:IUPLR050126
DOI:10.71329/IUPLR/2026.16.1.59-82
Author Name:Manika Gandhi and Shipra Gupta
Availability:YES
Subject/Domain:Law
Download Format:PDF
Pages:59-82
The micro, small and medium enterprises (MSMEs) in India have historically been at much greater risk than larger enterprises of facing financial distress, tax compliance issues, and insolvency shocks. While the Insolvency and Bankruptcy Code 2016 (IBC) has provided a single framework for the insolvency resolution, it does not treat MSMEs differently from other types of enterprises with regard to statutory dues owed to governments; nor does it address the underlying contradictions between the IBC and India’s taxation system, specifically the Goods and Services Tax (GST) and the Income Tax Act. This study provides an assessment of the need for a distinct tax treatment framework for MSMEs in the context of insolvency, during liquidation. It analyzes relevant statutes, judicial decisions, and official documents and identified significant and continuing inconsistencies in the treatment of government dues pursuant to Section 53, the application of the moratorium to recoveries of taxes owed, and liabilities incurred prior to the corporate insolvency resolution process (CIRP). The study postulates that these inconsistencies affect MSMEs adversely by increasing uncertainty, intensifying their regulatory burden, and reducing their chances of successfully pursuing resolution applications. The study also concludes that India should establish a dedicated framework for the tax treatment of MSMEs under the IBC to provide clarity, consistency, and better opportunities for successful revival.
India’s banking and financial system has transformed in the years since the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC). The IBC is the primary legislation for resolving distress in corporate entities.